Microsoft Faces Anticompetitive Allegations from Kaspersky
Microsoft Corp MSFT is preventing fair competition in the software security market alleges Moscow-based Kaspersky Lab. As per Reuters, the security software vendor has filed an antitrust complaint against the Windows maker with European Commission (EC) and the German federal cartel office.
We note that EC has the authority to prohibit sale (in the European Union) and/or impose penalties, if it finds a company guilty of anticompetitive behavior.
Kaspersky alleges that Microsoft is exploiting Windows dominance in the PC OS market to keep competition at bay. According to data available from Federal Digital Analytics Program (DAP) – as quoted by ZDNet (as of Jan 9, 2017) – Windows is still the most popular end-user OS, followed by Apple’s AAPL Mac OS and Alphabet’s GOOGL Google Chrome.
Microsoft bundles its Defender anti-virus software with Windows operating system (OS). However, according to Kaspersky, despite providing low-level of protection to users, the in-built software is creating entry barriers for independent software security providers.
This is because as PC users get the security software for free, they are reluctant to spend money on buying additional security solutions. Per Kaspersky, this practice is hurting top-line growth.
Windows Revenues Continues to Grow
Meanwhile, Microsoft reported robust Windows revenue growth in the latest quarter. Windows OEM pro revenues increased 10% year over year, while Windows commercial products and cloud services revenues increased 6% driven by strong adoption of Windows 10.
Microsoft Corporation Revenue (TTM)
Microsoft Corporation Revenue (TTM) | Microsoft Corporation Quote
Microsoft is also benefiting from strong adoption of Office 365 as well as rapid penetration of its cloud based service Azure. We note that Azure revenues soared 94% at constant currency year over year in the last quarter.
The strong top-line has helped share price to increase in recent times. We note that Microsoft has outperformed the S&P 500 on a year-to-date basis. While the index gained 15.0%, the stock returned 39.1%.
Microsoft: A Challenger to Kaspersky’s Lead in EPP
According to Endpoint Solutions Review, which quoted Gartner’s 2017 Magic Quadrant for Endpoint Protection Platforms (EPP), Kaspersky Lab is one of the four dominant leaders in the market.
Gartner defines EPP solutions “as integrated solutions that include Anti-malware, personal firewall, and port and device control capabilities. Many EPP solutions also include other capabilities such as vulnerability assessment, application control, and Enterprise Mobility Management (EMM).”
Apart from Kaspersky, Trend Micro, Sophos, and Symantec SYMC are the other three dominant names in the market. However, we note that Gartner lists Microsoft as one of the prominent challengers along with Intel Security.
Hence, Microsoft’s dominant position in the PC market definitely provides it leverage in the EPP market, which is a headwind for Kaspersky.
Conclusion
We believe that Kaspersky’s recent action primarily aims at forcing a negotiation or settlement with Microsoft, which the Windows-maker has been reluctant to do in the past.
However, it is difficult to predict the outcome of this kind of cases. A settlement will definitely benefit Kaspersky. However, Microsoft may not be too keen for negotiations due to its rapidly growing market share amid strong adoption of Windows 10.
Currently, Microsoft carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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